<PAGE>
FOUNDER AND ADMINISTRATOR
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT ADVISER
PACIFIC CENTURY TRUST
a division of
BANK OF HAWAII
Financial Plaza of the Pacific
P.O. Box 3170
Honolulu, Hawaii 96802
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Arthur K. Carlson
William M. Cole
Thomas W. Courtney
Richard W. Gushman, II
Stanley W. Hong
Theodore T. Mason
Russell K. Okata
Douglas Philpotts
Oswald K. Stender
OFFICERS
Diana P. Herrmann, President
Sherri Foster, Senior Vice President
Stephen J. Caridi, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
INDEPENDENT AUDITORS
KPMG LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus, which must precede or
accompany this report.
ANNUAL
REPORT
MARCH 31, 1999
HAWAIIAN
TAX-FREE
TRUST
[Logo of Hawaiian Tax-Free Trust: a palm tree in front of a circle which has an
island and water within it]
A TAX-FREE INCOME INVESTMENT
[Logo of Aquilasm Group of Funds: eagle's head inside of an oval.]
ONE OF THE
AQUILAsm GROUP OF FUNDS
</PAGE>
<PAGE>
SERVING HAWAII INVESTORS FOR OVER A DECADE
HAWAIIAN TAX-FREE TRUST
ANNUAL REPORT
"THE BEST THINGS IN LIFE CAN BE TAX-FREE"
May 17, 1999
Dear Fellow Shareholder:
When you compare TAX-FREE municipal bonds with taxable high-quality U.S.
Treasuries of similar maturity, we think it is fair to say,
"THE BEST THINGS IN LIFE CAN BE TAX-FREE."
You actually get to keep more of your return - in dollars and cents - with
the TAX-FREE investment, than you do with the taxable investment, when you take
into consideration the effect of taxes you pay.
SEEING IS BELIEVING
Let us show you the mathematics of how this works out. Let's suppose you
purchase a $1,000 15-year U.S. Treasury bond yielding 5.7% and a $1,000 tax-free
municipal bond with a maturity of 15 years yielding 4.6%. Your investments would
look as follows:
U.S. TREASURY* TAX-FREE*
Interest Income $57.00 $46.00
Federal Tax Bracket 28% 28%
Federal Tax Paid $15.96 $ -0-
Net Income Retained $41.04 $46.00
Even though on the surface the U.S. Treasury appears to be yielding higher
than the TAX-FREE municipal, once you take into consideration the effect of
Federal taxes, this is not the case. The TAX-FREE investment allows you to keep
more money in your pocket. State taxes do not apply with either investment.
Obviously, investors in Federal income tax brackets higher than 28% will
obtain an even greater advantage.
Of course, only you can make the decision as to the right asset allocation
for your investment money. However, given the fact that there is a favorable
ratio of TAX-FREE vs. taxable bonds, we believe it is fair to say that,
"THE BEST THINGS IN LIFE CAN BE TAX-FREE."
THE TAX-FREE BONDS IN THE TRUST'S PORTFOLIO
When you look over the portfolio of Hawaiian Tax-Free Trust, you will see
that it contains only high quality TAX-FREE municipal bonds. Additionally, the
maturity of the overall portfolio of the Trust has a relatively intermediate
character. Each of these factors with the tax-free bonds in the Trust's
portfolio lends itself to the kind of investment with the Trust that allows you
to "SLEEP WELL AT NIGHT."
</PAGE>
<PAGE>
THE OTHER BENEFITS OF YOUR INVESTMENT
There are other benefits inherent in your investment in Hawaiian Tax-Free
Trust. These benefits are very tangible and are ones that you can take pride in
and say,
"THE BEST THINGS IN LIFE CAN TRULY BE TAX-FREE."
The TAX-FREE bonds in the Trust help finance a variety of public purpose
projects throughout Hawaii. These are the kind of projects that benefit you and
your neighbors.
For example, have you:
- - flown out of Keahole-Kona airport for business or vacation?
- - attended concerts at the Maui Arts & Cultural Center?
- - depended on the services of Koloa Fire Station?
- - seen a grandchild for the first time at St. Francis Medical Center?
If so, that's your money in the Trust at work with these projects. The
money that you and other shareholders have invested in the Trust has helped
build each of these and many more beneficial projects for citizens throughout
the islands of Hawaii.
Just remember how proud and excited you were the day you sat behind the
wheel of your first car, or walked into your first home. It was your hard-earned
dollars that paid for these comforts.
Well, in another sense, you can be equally proud and excited about the
projects you have helped finance with your investment in Hawaiian Tax-Free Trust
within your community and throughout the State of Hawaii. It is your hard-earned
dollars that have helped build the St. Francis Medical Center, the Keahole-Kona
airport, the Maui Arts & Cultural Center, the Koloa Fire Station, and a variety
of other projects throughout Hawaii that the Trust has helped finance.
</PAGE>
<PAGE>
Truly, it is with your investment and that of other shareholders that
Hawaiian Tax-Free Trust helped build the benefits that you can see and reach out
and touch.
In a very real sense, these municipal projects belong to you and came to
fruition through your hard work and investments in the Trust. Thus, not only do
you get TAX-FREE** income advantages through your investment in Hawaiian
Tax-Free Trust, but, also, you can literally take pride in saying that through
the benefits of these projects,
"THE BEST THINGS IN LIFE CAN BE TAX-FREE."
YOUR CONFIDENCE APPRECIATED
You can be assured that all those associated with the management of your
investment in Hawaiian Tax-Free Trust are consistently working in your best
interest. We very much value you as a shareholder and appreciate the confidence
you have shown in the Trust.
Sincerely,
Diana P. Herrmann
President
Lacy B. Herrmann
Chairman, Board of Trustees
* The investment examples given, while realistic, are for illustrative
purposes only, and are strictly hypothetical in nature. They do not
represent the performance of any particular investment. For simplicity, a
stable net asset value has been assumed over the life of each investment
and the effect of dividend reinvestment was not taken into account. Of
course, the actual rate of return and share price of a municipal bond fund,
such as Hawaiian Tax-Free Trust, will fluctuate with general interest rate
changes. Thus, redemption price may be more or less than original purchase
price.
** Some portion of dividends may be subject to Federal and state taxes,
including the Alternative Minimum Tax (AMT), for certain investors.
</PAGE>
<PAGE>
PERFORMANCE REPORT
The following graph illustrates the value of $10,000 invested in the Class
A shares of Hawaiian Tax-Free Trust for the 10-year period ended March 31, 1999
as compared with the Lehman Brothers Municipal Bond Index and the Consumer Price
Index (a cost of living index). The performance of each of the other classes is
not shown in the graph but is included in the table below. It should be noted
that the Lehman Index does not include any operating expenses nor sales charges
and being nationally oriented, does not reflect state specific bond market
performance.
[Graphic of a line graph with the following information:]
TRUST'S CLASS A SHARES
----------------------------
LEHMAN BROTHERS
MUNICIPAL COST OF WITH WITHOUT
BOND INDEX LIVING INDEX SALES CHARGE SALES CHARGE
--------------- ------------ ------------ ------------
3/89 $10,000 $10,000 $ 9,600 $10,000
3/90 11,055 10,515 10,456 10,889
3/91 12,075 11,700 11,030 11,233
3/92 13,282 11,382 12,258 12,767
3/93 15,240 11,726 13,596 14,161
3/94 15,593 12,037 14,109 14,694
3/95 16,757 12,372 14,715 15,326
3/96 18,161 12,723 15,755 16,409
3/97 19,154 13,075 16,471 17,155
3/98 21,206 13,255 18,031 18,779
3/99 22,519 13,492 18,957 19,744
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED MARCH 31, 1999
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
------ ------- -------- ------------------
Class A (2/20/85)
With Sales Charge...... 0.93% 5.53% 6.60% 7.61%
Without Sales Charge... 5.17% 6.41% 7.04% 7.93%
Class C (4/1/96)
With CDSC.............. 3.41% 5.40%
Without CDSC........... 4.45% 5.40%
Class Y (4/1/96)
No Sales Charge........ 5.45% 7.26%
Lehman Index.............. 6.20% 7.63% 8.56% 9.50% (Class A)
7.43% (Class C&Y)
Total return figures shown for the Trust reflect any change in price and
assume all distributions within the period were invested in additional shares.
Returns for Class A shares are calculated with and without the effect of the
initial 4% maximum sales charge. Returns for Class C shares are calculated with
and without the effect of the 1% contingent deferred sales charge (CDSC),
imposed on redemptions made within the first 12 months after purchase. Class Y
shares are sold without any sales charge. The rates of return will vary and the
principal value of an investment will fluctuate with market conditions. Shares,
if redeemed, may be worth more or less than their original cost. A portion of
each classes' income may be subject to federal and state income taxes and/or the
federal alternative minimum tax. Past performance is not predictive of future
investment results.
</PAGE>
<PAGE>
MANAGEMENT DISCUSSION
During the latest fiscal year of Hawaiian Tax-Free Trust ended March 31,
1999, the domestic economy of the United States continued to show unabated
strength. Productivity continued to rise, unemployment continued to drop, and
inflation continued at a very low level. These factors had their positive effect
upon the equity markets.
As a result, over this latest fiscal year period, the focus of investors
continued to be primarily on rising equity type investments. Although there was
a short-term correction in the equity markets during the third calendar quarter
of 1998, stock prices snapped backed quickly and generally continued their
upward trend, although on a more selective basis.
The Federal Reserve eased interest rates three times during 1998. This, in
turn, set the stage for generally lower interest rates of U.S. Treasuries and
municipal bonds. During the fiscal year of the Trust, the action of the Federal
Reserve lowered interest rates from 5.50% to 4.75%. However, the 30-year
Treasury bond showed a net decline of only 1/4 of 1% over the course of the
fiscal year and long-term municipal bonds experienced a lesser decline of 1/10
of 1% during the same period.
The rate lowering action of the Federal Reserve had the result of an
increase nationally in the supply of high-grade municipal securities. This
reflected the desire on the part of many municipal authorities to refinance
existing securities. As a result, during the latter part of the year 1998, the
ratio of yield on municipal securities versus that of similar maturity U.S.
Treasuries became extremely attractive for the ownership of municipal
securities. While this situation has corrected itself somewhat since then, the
ratio of tax-free vs. taxable yields still very much favors ownership of
municipal securities.
Unfortunately, the general economic strength witnessed by the U.S. economy
as a whole did not reflect itself in the economic situation in Hawaii. Due to a
variety of factors, the economy of Hawaii continued to be relatively soft. While
the Hawaii economy has not grown at the same rate as the general national trend,
we feel that the present local situation in Hawaii, while not bright, is far
from being overly pessimistic. The interest rates on municipal bonds issued by
the State and its various state-wide projects have made Hawaii bonds attractive
relative to the national market.
The Trust continues to emphasize high credit quality and capital safety in
management of its investment portfolio. We seek the balanced objectives of high
after-tax income and capital preservation. While we do not visualize any
significant problems with the various municipal obligations held by the Trust,
it has been the general policy of Pacific Century Trust, the Trust's Investment
Adviser, to have a substantial portion of the Trust's portfolio insured. At
present, approximately 75% of the assets of the Trust are rated AAA. Of this
amount, 71% are insured to AAA by specialized insurance companies which, in
turn, have AAA credit ratings themselves. A credit rating of AAA is the highest
possible level of quality attainable. It is our desire to provide the maximum
degree of comfort to investors so that they may "sleep well at night" knowing
that their investment in the Trust is as safe and as secure as reasonable.
It is the intent of the Trust to maintain this high quality position over
the upcoming fiscal year. Very little yield has been sacrificed by this action,
but more importantly, a high level of safety for shareholders' invested capital
has been achieved. Management is well aware that a substantial number of our
shareholders are retirees or pre-retirees who very much want to retain the value
of their assets in the Trust and look to Hawaiian Tax-Free Trust to achieve this
objective.
</PAGE>
<PAGE>
[Logo of KPMG: the letters 'KPMG' in front of four black rectangles]
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Hawaiian Tax-Free Trust:
We have audited the accompanying statement of assets and liabilities of
Hawaiian Tax-Free Trust, including the statement of investments, as of March 31,
1999, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
then ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1999, by correspondence with the custodian. As to securities purchased but
not received, we performed other appropriate auditing procedures. An audit also
includes assessing the accounting principles used, and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Hawaiian Tax-Free Trust as of March 31, 1999, the results of its operations for
the year then ended, the changes in its net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the five-year period then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
New York, New York
April 27, 1999
</PAGE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
MARCH 31, 1999
<TABLE>
<CAPTION>
RATING
FACE MOODY'S/
AMOUNT HAWAII (95.8%) S&P VALUE
- --------------- ----------------------------------------------------- -------- --------------
</CAPTION>
<S> <C> <C> <C> <C>
Board of Regents, University of Hawaii Aaa/AAA
University System Revenue Bonds,
Series G, AMBAC Insured,
$ 2,910,000 5.650%, 10/01/01 $ 3,073,688
4,290,000 5.700%, 10/01/17 4,483,050
Board of Regents, University of Hawaii Aaa/AAA
University System Revenue Bonds,
Series I, FGIC Insured,
1,110,000 5.300%, 10/01/08 1,179,375
2,825,000 5.500%, 10/01/18 2,938,000
Board of Water Supply, City and County Aaa/AAA
of Honolulu, Hawaii Water System
Revenue Bonds, Series 1996, MBIA Insured,
1,090,000 5.400%, 07/01/09 1,160,850
1,750,000 5.800%, 07/01/16 1,879,063
1,500,000 5.800%, 07/01/21 1,603,125
City and County of Honolulu NR/NR*
Multifamily Housing Revenue Bonds
(Cambridge Park Project) 1988 Series A,
8,000,000 5.850%, 12/01/02 8,080,000
City and County of Honolulu, Hawaii Aaa/AAA
General Obligation Bonds Series A,
FGIC/MBIA+ Insured
5,385,000 7.300%, 07/01/03 6,091,781
2,895,000 7.350%, 07/01/05 3,405,244
4,790,000 7.350%, 07/01/06 5,712,075
9,970,000 7.350%, 07/01/07 12,038,775
850,000 5.000%, 11/01/07+ 899,938
270,000 5.250%, 11/01/07+ 290,588
500,000 5.500%, 11/01/07+ 546,875
3,600,000 7.350%, 07/01/08 4,405,500
560,000 5.625%, 09/01/08 620,200
1,615,000 6.000%, 11/01/09+ 1,820,913
600,000 6.000%, 11/01/09+ 686,250
1,090,000 6.000%, 11/01/10+ 1,234,425
410,000 6.000%, 11/01/10+ 470,988
4,855,000 6.000%, 01/01/11 5,467,944
970,000 6.000%, 01/01/11 1,105,800
3,205,000 5.750%, 04/01/11 3,529,506
795,000 5.750%, 04/01/11 886,425
420,000 6.000%, 01/01/12 479,325
2,080,000 6.000%, 01/01/12 2,337,400
765,000 5.750%, 04/01/13 855,844
3,035,000 5.750%, 04/01/13 3,342,294
730,000 5.250%, 11/01/13+ 751,900
440,000 5.625%, 09/01/14 467,500
1,335,000 5.500%, 11/01/14+ 1,391,738
2,280,000 5.000%, 11/01/15+ 2,291,400
City and County of Honolulu, Hawaii Aaa/AAA
General Obligation Bonds Series B, FGIC Insured
1,245,000 5.000%, 11/01/07 1,325,925
470,000 5.000%, 11/01/07 500,550
940,000 5.000%, 11/01/07 1,001,100
820,000 5.000%, 11/01/07 873,300
2,490,000 5.500%, 10/01/11 2,739,000
7,310,000 5.500%, 10/01/11 7,931,350
930,000 5.000%, 11/01/13 948,600
1,060,000 5.000%, 11/01/14 1,070,600
530,000 5.000%, 11/01/16 530,663
1,400,000 5.000%, 11/01/17 1,393,000
4,000,000 5.000%, 07/01/19 3,940,000
1,395,000 5.000%, 07/01/20 1,370,588
City and County of Honolulu, Hawaii Aaa/AAA
General Obligation Bonds Series C, FGIC Insured,
2,510,000 5.000%, 07/01/18 2,481,763
City and County of Honolulu Hawaii Aaa/AAA
General Obligation Bonds, Refunding
and Improvement Series, 1993B
Fixed Rate Bonds, FGIC Insured,
1,050,000 6.000%, 12/01/15 1,189,125
City and County of Honolulu, Hawaii Aaa/AAA
General Obligation Water Bonds,
Series 1992, MBIA Insured,
1,125,000 6.000%, 12/01/12 1,271,250
City and County of Honolulu NR/NR*
Improvement District No. 261
(Halawa Business Park), Improvement
District Bonds,
365,000 6.700%, 10/15/04 405,150
355,000 6.800%, 10/15/05 398,931
345,000 6.900%, 10/15/06 387,694
City and County of Honolulu Aaa/AAA
Mortgage Revenue Refunding-FHA
District No. 221 Bonds
MBIA FHA Insured
2,910,000 7.800%, 07/01/24 3,095,513
City and County of Honolulu Aaa/AAA
Wastewater Systems Revenue Bonds
First Bond Resolution
FGIC Insured
12,000,000 4.750%, 07/01/28 11,325,000
City and County of Honolulu Aaa/AAA
Wastewater Systems Revenue Bonds
Second Bond Resolution-Junior Series
FGIC Insured
6,055,000 5.000%, 07/01/23 5,964,175
Kauai County General Obligation A/NR
Escrowed to Maturity Bonds,
615,000 9.000%, 08/01/04 760,294
County of Kauai, State of Hawaii Aaa/AAA
General Obligation Refunding Bonds,
1992 Series A,B & C, AMBAC Insured,
930,000 5.250%, 08/01/01 964,875
330,000 5.450%, 08/01/03 350,213
1,030,000 5.450%, 08/01/03 1,093,088
435,000 5.900%, 08/01/08 485,025
1,355,000 5.900%, 08/01/08 1,510,825
1,300,000 5.950%, 08/01/10 1,462,500
County of Kauai, State of Hawaii Aaa/AAA
General Obligation Refunding Bonds,
Series 1994A & 1994B, MBIA Insured,
365,000 5.200%, 02/01/02 378,688
460,000 5.300%, 02/01/03 482,425
190,000 5.300%, 02/01/03 199,263
185,000 5.400%, 02/01/04 196,331
215,000 5.500%, 02/01/05 230,319
215,000 5.600%, 02/01/06 231,125
1,010,000 5.700%, 02/01/07 1,085,750
County of Maui, Hawaii General Aaa/AAA
Obligation Refunding Bonds Series A,
MBIA Insured,
1,075,000 6.000%, 06/01/15 1,158,313
County of Maui, Hawaii General Aaa/AAA
Obligation Refunding Bonds 1995, FGIC Insured,
930,000 5.050%, 06/01/08 966,038
980,000 5.050%, 06/01/09 1,013,075
1,040,000 5.150%, 06/01/10 1,076,400
1,100,000 5.200%, 06/01/11 1,135,750
1,160,000 5.200%, 06/01/12 1,191,900
1,230,000 5.200%, 06/01/13 1,257,675
1,300,000 5.250%, 06/01/14 1,329,250
1,380,000 5.250%, 06/01/15 1,405,875
County of Maui, Hawaii General Aaa/AAA
Obligation Refunding Bonds 1993
Series B, C, D & E, FGIC Insured,
1,815,000 5.000%, 09/01/07 1,878,525
2,125,000 5.000%, 09/01/08 2,194,063
1,000,000 5.000%, 09/01/09 1,028,750
1,000,000 5.000%, 09/01/10 1,025,000
3,000,000 5.125%, 12/15/11 3,082,500
1,045,000 5.125%, 12/15/13 1,063,288
County of Maui, Hawaii General Aaa/AAA
Obligation 1997 Series A, FGIC Insured,
1,130,000 5.250%, 09/01/13 1,169,550
1,265,000 5.250%, 09/01/15 1,298,206
1,335,000 5.250%, 09/01/16 1,363,369
County of Maui, Hawaii General Aaa/AAA
Obligation 1998 Series A, FGIC Insured,
1,200,000 5.125%, 03/01/14 1,225,500
1,050,000 5.125%, 03/01/16 1,061,813
2,590,000 5.250%, 03/01/18 2,625,613
Maui County Water System Aaa/AAA
Revenue Pre-Refunded Bonds, FGIC Insured,
1,225,000 6.200%, 12/01/03 1,319,938
1,300,000 6.300%, 12/01/04 1,404,000
1,390,000 6.400%, 12/01/05 1,504,675
1,280,000 6.500%, 12/01/06 1,385,600
1,250,000 6.600%, 12/01/07 1,356,250
1,500,000 6.650%, 12/01/08 1,629,375
1,470,000 6.650%, 12/01/09 1,596,788
1,860,000 6.700%, 12/01/10 2,025,075
1,560,000 6.700%, 12/01/11 1,698,450
Department of Budget and Finance of NR/AA-
the State of Hawaii Special Purpose
Revenue Bonds (Citizens Utilities
Company Project),
3,400,000 6.900%, 11/01/15 3,494,316
5,000,000 6.600%, 07/01/22 5,368,750
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (Lutheran Good
Samaritan Society Project), AMBAC Insured,
1,705,000 4.700%, 11/01/06 1,758,281
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (Hawaiian Electric Company, Inc.
Series A), MBIA Insured,
5,000,000 5.650%, 10/01/27 5,312,500
Department of Budget and Finance of A1/AA-
the State of Hawaii Special Purpose
Revenue Bonds (The Queens Health System,
Series A)
1,000,000 3.000%, 07/01/26 1,000,000
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (The Queens Health System,
Series B), MBIA Insured,
8,000,000 5.250%, 07/01/23 8,070,000
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (The Evangelical Lutheran Good
Samaritan Society), Refunding Series 1993,
AMBAC Insured,
700,000 4.400%, 11/01/01 713,125
730,000 4.500%, 11/01/02 744,600
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (Hawaiian Electric
Light Company, Inc. Project), MBIA Insured,
5,600,000 7.200%, 12/01/14 5,858,272
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (Hawaiian Electric
Co., Inc., and Subsidiaries Projects),
Series 1995A, MBIA Insured,
13,000,000 6.600%, 01/01/25 14,397,500
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue (Kapiolani Health Care
System) Series 1993, MBIA Insured,
1,000,000 6.300%, 07/01/08 1,095,000
6,000,000 6.400%, 07/01/13 6,585,000
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue (Kapiolani Health Care
System) Series 1996, MBIA Insured,
1,000,000 6.000%, 07/01/11 1,103,750
1,000,000 6.200%, 07/01/16 1,111,250
1,000,000 6.250%, 07/01/21 1,112,500
Department of Budget and Finance of AAA/AAA
the State of Hawaii Special Purpose
Revenue Pre-Refunded Bonds -
Kapiolani Health Care System
(Pali Momi Medical Center
Project), Series 1991,
3,000,000 7.600%, 07/01/10 3,315,000
11,200,000 7.650%, 07/01/19 12,390,000
Department of Budget and Finance of Aa3/AA
the State of Hawaii Special Purpose
Revenue Bonds (The Queen's Health
System), Series A,
4,000,000 6.050%, 07/01/16 4,350,000
8,625,000 6.000%, 07/01/20 9,293,438
3,500,000 5.750%, 07/01/26 3,653,125
Department of Budget and Finance of Aaa/AAA
the State of Hawaii Special Purpose
Revenue Bonds (St. Francis Medical
Centers), Refunding Series 1992,
FSA Insured,
20,000,000 6.500%, 07/01/22 21,725,000
Department of Hawaiian Home Lands NR/NR*
(State of Hawaii) Revenue Bonds,
Series 1991,
700,000 6.900%, 07/01/99 704,963
745,000 7.000%, 07/01/00 772,938
800,000 7.100%, 07/01/01 851,000
855,000 7.200%, 07/01/02 936,225
915,000 7.300%, 07/01/03 1,004,213
985,000 7.400%, 07/01/04 1,082,269
1,055,000 7.500%, 07/01/05 1,161,819
1,135,000 7.550%, 07/01/06 1,251,338
1,225,000 7.600%, 07/01/07 1,352,094
1,415,000 7.650%, 07/01/09 1,563,575
1,520,000 7.650%, 07/01/10 1,679,600
1,640,000 7.650%, 07/01/11 1,812,200
Department of Hawaiian Home Lands A3/NR
(State of Hawaii) Revenue Bonds,
Series 1999,
1,310,000 4.150%, 07/01/08 1,288,713
1,525,000 4.350%, 07/01/10 1,494,500
1,245,000 4.450%, 07/01/11 1,212,319
Department of Transportation of the NR/A-
State of Hawaii Special Facility
Revenue Bonds (Matson Terminals,
Inc.), Refunding Series 1993,
11,875,000 5.750%, 03/01/13 12,275,781
Housing Finance and Development Aaa/AAA
Corporation (State of Hawaii)
University of Hawaii Faculty
Housing Project, AMBAC Insured,
2,125,000 5.650%, 10/01/16 2,239,219
4,000,000 5.700%, 10/01/25 4,220,000
Housing Finance and Development A1/NR
Corporation (State of Hawaii) Rental Housing
System Revenue Bonds of 1993 Series A,
2,000,000 5.600%, 07/01/12 2,070,000
3,000,000 5.700%, 07/01/18 3,078,750
Housing Finance and Development Aa1/AA
Corporation (State of Hawaii) Single Family
Mortgage Purchase Revenue Bonds, Series B
4,805,000 7.000%, 07/01/31 5,093,300
Housing Finance and Development Aa1/AA
Corporation (State of Hawaii) Single
Family Mortgage Purchase Revenue Bonds,
AMT-Series A
8,295,000 6.000%, 07/01/26 8,564,588
Housing Finance and Development Aa1/AA
Corporation (State of Hawaii) Single
Family Mortgage Purchase Revenue
Bonds of 1994 Series A & B,
2,500,000 5.700%, 07/01/13 2,584,375
16,750,000 5.850%, 07/01/17 17,315,313
Housing Finance and Development Aa1/AA
Corporation (State of Hawaii) Single
Family Mortgage Purchase Revenue
Bonds of 1997 Series A, FNMA Insured,
19,735,000 5.750%, 07/01/30 20,499,731
Housing Finance and Development Aa1/AA
Corporation (State of Hawaii) Single
Family Mortgage Purchase Revenue
Bonds of 1997 Series B, FNMA Insured,
9,350,000 5.450%, 07/01/17 9,595,438
Housing Finance and Development Aa1/AA
Corporation (State of Hawaii) Single
Family Mortgage Purchase Revenue
Bonds of 1998 Series B, FNMA Insured,
6,800,000 5.300%, 07/01/28 6,851,000
Housing Finance and Development Aa1/AA
Corporation (State of Hawaii) Single
Family Mortgage Purchase Revenue
Bonds of 1998, AMT-Series A, FNMA Insured,
4,285,000 5.400%, 07/01/30 4,327,850
County of Hawaii, Hawaii General Aaa/AAA
Obligation Bonds Refunding and
Improvement Series 1993A, FGIC Insured,
1,000,000 5.200%, 05/01/04 1,055,000
2,700,000 5.450%, 05/01/07 2,902,500
3,170,000 5.500%, 05/01/08 3,431,525
2,500,000 5.550%, 05/01/09 2,715,625
4,905,000 5.600%, 05/01/11 5,352,581
1,000,000 5.600%, 05/01/12 1,087,500
1,000,000 5.600%, 05/01/13 1,086,250
County of Hawaii, Hawaii Public Improvement Aaa/AAA
Bonds of 1996 Series A, FGIC Insured,
1,440,000 4.500%, 02/01/05 1,468,800
1,900,000 5.000%, 02/01/11 1,952,250
1,970,000 5.100%, 02/01/12 2,024,175
2,205,000 5.200%, 02/01/14 2,260,125
2,440,000 5.200%, 02/01/16 2,479,650
Hawaii Community Development Authority NR/NR*
Improvement District Bonds (Kakaako
Community Development District
Improvement District 3),
160,000 7.000%, 07/01/99 161,171
995,000 7.300%, 07/01/04 1,062,163
1,490,000 7.400%, 07/01/10 1,584,988
Hawaii Community Development Authority NR/NR*
Improvement District Refunding Bonds
(Kakaako Community Development
District Improvement District 1),
235,000 4.700%, 07/01/99 235,496
245,000 4.850%, 07/01/00 247,756
255,000 5.000%, 07/01/01 260,100
270,000 5.100%, 07/01/02 277,088
280,000 5.200%, 07/01/03 289,800
300,000 5.300%, 07/01/04 312,000
230,000 5.400%, 07/01/05 240,063
Hawaii Community Development Authority NR/NR*
Improvement District Refunding Bonds
(Kakaako Community Development
District Improvement District 2),
315,000 4.700%, 07/01/99 315,665
325,000 4.850%, 07/01/00 328,656
345,000 5.000%, 07/01/01 351,900
355,000 5.100%, 07/01/02 364,319
375,000 5.200%, 07/01/03 388,125
395,000 5.300%, 07/01/04 410,800
420,000 5.400%, 07/01/05 438,375
435,000 5.500%, 07/01/06 454,031
465,000 5.600%, 07/01/07 487,088
390,000 5.700%, 07/01/08 408,525
State of Hawaii Airport System Aaa/AAA
Revenue Bonds, MBIA/FGIC+ Insured,
1,150,000 5.250%, 07/01/00 1,174,438
6,455,000 6.900%, 07/01/12 7,713,725
3,000,000 7.000%, 07/01/18 + 3,240,000
4,025,000 7.000%, 07/01/18 4,347,000
1,000,000 6.750%, 07/01/21 1,072,500
State of Hawaii General Obligation Aaa/AAA
Bonds, FGIC Insured,
2,000,000 5.750%, 01/01/11 2,207,500
3,700,000 6.000%, 10/01/11 4,185,625
3,500,000 6.000%, 10/01/12 3,950,625
State of Hawaii General Obligation Aaa/AAA
Bonds of 1997, Series CP, FGIC Insured,
4,195,000 5.000%, 10/01/14 4,236,950
3,000,000 5.000%, 10/01/15 3,018,750
1,000,000 5.000%, 10/01/16 1,001,250
7,195,000 5.000%, 10/01/17 7,159,025
State of Hawaii General Obligation Aaa/AAA
Bonds of 1996, Series CM, FGIC Insured,
3,000,000 6.500%, 12/01/15 3,570,000
State of Hawaii General Obligation Aaa/AAA
Bonds of 1997, Series CN, FGIC Insured,
1,000,000 5.250%, 03/01/13 1,033,750
5,950,000 5.250%, 03/01/15 6,098,750
7,000,000 5.500%, 03/01/16 7,717,500
1,000,000 5.250%, 03/01/17 1,016,250
State of Hawaii General Obligation Aaa/AAA
Bonds of 1998, Series CR, MBIA Insured,
5,000,000 5.000%, 04/01/16 5,006,250
12,000,000 5.000%, 04/01/17 11,940,000
State of Hawaii General Obligation Aaa/AAA
Refunding Bonds of 1993, Series CH,
FGIC Insured,
5,000,000 6.000%, 11/01/07 5,593,750
3,390,000 6.000%, 11/01/08 3,813,750
State of Hawaii General Obligation Aaa/AAA
Refunding Bonds of 1993, Series CL,
FGIC Insured,
2,305,000 6.000%, 03/01/11 2,598,888
State of Hawaii Harbor Capital Aaa/AAA
Improvements Revenue Bonds, MBIA Insured,
2,205,000 6.200%, 07/01/08 2,381,400
3,850,000 5.750%, 07/01/17 4,109,875
State of Hawaii Harbor Capital Aaa/AAA
Improvements Revenue Bonds, MBIA Insured,
14,000,000 7.250%, 07/01/10 14,805,000
1,200,000 7.000%, 07/01/17 1,264,500
State of Hawaii Harbor Revenue Bonds, Aaa/AAA
Series 1992, FGIC Insured,
3,850,000 6.500%, 07/01/19 4,172,438
State of Hawaii Harbor Revenue Bonds, Aaa/AAA
Refunding Series 1993, FGIC Insured,
1,260,000 6.050%, 07/01/04 1,381,275
1,225,000 6.150%, 07/01/05 1,344,438
State of Hawaii Harbor Revenue Bonds, Aaa/AAA
Series of 1994, FGIC Insured,
1,000,000 6.250%, 07/01/09 1,101,250
1,000,000 6.250%, 07/01/10 1,097,500
3,725,000 6.250%, 07/01/15 4,064,906
10,180,000 6.375%, 07/01/24 11,172,550
State of Hawaii Highway Revenue Aaa/AAA
Bonds Series 1993, FGIC Insured,
4,000,000 4.875%, 07/01/07 4,135,000
3,900,000 5.000%, 07/01/08 4,046,250
2,255,000 5.000%, 07/01/09 2,322,650
4,575,000 5.000%, 07/01/10 4,689,375
2,220,000 5.000%, 07/01/11 2,264,400
3,850,000 5.000%, 07/01/12 3,902,927
2,750,000 5.000%, 07/01/13 2,777,500
1,000,000 5.000%, 07/01/16 1,001,250
State of Hawaii Highway Revenue Aaa/AAA
Bonds Series 1996, FGIC Insured,
3,705,000 5.600%, 07/01/13 3,936,552
2,000,000 5.250%, 07/01/16 2,045,000
State of Hawaii Highway Revenue NR/AAA
Bonds Series 1996, MBIA-IBC Insured,
1,000,000 5.250%, 07/01/16 1,022,500
-------------
Total Hawaii 625,919,520
-------------
GUAM (0.2%)
Government of Guam Ltd. Aaa/AAA
Water System Revenue Bonds, FSA Insured,
1,500,000 7.000%, 07/01/09 1,556,175
-------------
Total Guam 1,556,175
-------------
PUERTO RICO (3.6%)
Puerto Rico Commonwealth Highway & Transit Auth., Aaa/AAA
Series A, Revenue Bonds, AMBAC Insured,
8,035,000 5.000%, 07/01/28 8,024,956
Puerto Rico Public Buildings Authority Aaa/AAA
Guaranteed Revenue Bonds, Series B,
AMBAC Insured,
10,390,000 5.000%, 07/01/27 10,325,063
Puerto Rico Electric Power Authority Aaa/AAA
Power Revenue Bonds, FSA Insured,
1,000,000 4.750%, 07/01/21 973,750
Puerto Rico Electric Power Authority Aaa/AAA
Power Revenue Bonds, Series DD
MBIA-IBC Insured,
4,305,000 5.000%, 07/01/28 4,278,094
-------------
Total Puerto Rico 23,601,863
-------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Total Investments (cost $612,978,084**) 99.6% $ 651,077,558
Other assets in excess of liabilities 0.4 2,377,201
------ -------------
Net Assets 100.0% $ 653,454,759
====== =============
</TABLE>
* Any security not rated has been determined by the
Investment Adviser to have sufficient quality to be
ranked in the top four credit ratings if a credit
rating were to be assigned by a rating service.
** Cost for Federal tax purposes is identical
PORTFOLIO ABBREVIATIONS:
AMBAC American Municipal Bond Assurance Corp.
FSA Financial Security Assurance Co.
FGIC Financial Guaranty Insurance Co.
FHA Federal Housing Administration
FNMA Federal National Mortgage Association
MBIA Municipal Bond Investors Assurance Corp.
See accompanying notes to financial statements
</PAGE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999
<TABLE>
ASSETS
<S> <C>
Investments at value (cost $612,978,084) $ 651,077,558
Cash 1,179,552
Interest receivable 10,331,752
Receivable for Trust shares sold 560,101
Other assets 9,842
-------------
Total assets 663,158,805
-------------
LIABILITIES
Payable for investment securities purchased 7,815,831
Dividends payable 614,469
Payable for Trust shares redeemed 601,460
Distribution fees payable 339,104
Adviser and Administrator fees payable 220,838
Accrued expenses 112,344
-------------
Total liabilities 9,704,046
-------------
NET ASSETS $ 653,454,759
=============
Net Assets consist of:
Capital Stock, no par value, authorized an unlimited number of shares $ 609,680,284
Undistributed net realized gains on investments 3,594,338
Undistributed net investment income 2,080,663
Net unrealized appreciation on investments 38,099,474
-------------
$ 653,454,759
=============
CLASS A
Net Assets $ 640,131,345
=============
Capital shares outstanding 54,925,041
=============
Net asset value and redemption price per share $ 11.65
=============
Offering price per share (100/96 of $11.65 adjusted to nearest cent) $ 12.14
=============
CLASS C
Net Assets $ 10,735,753
=============
Capital shares outstanding 921,588
=============
Net asset value and offering price per share $ 11.65
=============
Redemption price per share (*a charge of 1% is imposed on the redemption
proceeds of the shares, or on the original price, whichever is lower,
if redeemed during the first 12 months after purchase) $ 11.65*
=============
CLASS Y
Net Assets $ 2,587,661
=============
Capital shares outstanding 221,742
=============
Net asset value, offering and redemption price per share $ 11.67
=============
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 35,852,271
Expenses:
Investment Adviser fees (note 3) $ 912,501
Administrator fees (note 3) 1,694,655
Distribution and service fees (note 3) 1,367,455
Transfer and shareholder servicing agent fees 339,422
Trustees' fees and expenses (note 8) 169,327
Legal fees 93,634
Shareholders' reports and proxy statements 92,749
Custodian fees 61,413
Registration fees and dues 35,589
Audit and accounting fees 22,300
Insurance 10,485
Miscellaneous 68,059
-------------
4,867,589
Expenses paid indirectly (note 7) (267,278)
-------------
Net expenses 4,600,311
-------------
Net investment income 31,251,960
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from securities transactions 6,224,420
Change in unrealized appreciation on investments (4,388,807)
-------------
Net realized and unrealized gain on investments 1,835,613
-------------
Net increase in net assets resulting from operations $ 33,087,573
=============
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1999 1998
------------- -------------
</CAPTION>
OPERATIONS:
<S> <C> <C>
Net investment income $ 31,251,960 $ 32,660,069
Net realized gain from securities transactions 6,224,420 3,486,866
Change in unrealized appreciation on investments (4,388,807) 22,640,184
------------- -------------
Change in net assets resulting from operations 33,087,573 58,787,119
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6):
Class A Shares:
Net investment income, tax-exempt (30,838,116) (29,979,152)
Net investment income, taxable (4,256) -
Net realized gain on investments (2,577,865) (3,442,638)
Class C Shares:
Net investment income, tax-exempt (339,168) (217,304)
Net investment income, taxable (72) -
Net realized gain on investments (37,852) (37,620)
Class Y Shares:
Net investment income, tax-exempt (99,065) (19,583)
Net investment income, taxable (17) -
Net realized gain on investments (9,383) (6,608)
------------- -------------
Change in net assets from distributions (33,905,794) (33,702,905)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 9):
Proceeds from shares sold 45,134,896 48,300,227
Reinvested dividends and distributions 17,971,550 17,263,035
Cost of shares redeemed (65,256,694) (80,580,151)
------------- -------------
Change in net assets from capital share transactions (2,150,248) (15,016,889)
------------- -------------
Change in net assets (2,968,469) 10,067,325
NET ASSETS:
Beginning of period 656,423,228 646,355,903
------------- -------------
End of period $ 653,454,759 $ 656,423,228
------------- -------------
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Hawaiian Tax-Free Trust (the "Trust"), a non-diversified, open-end
investment company, was organized on May 7, 1984, as a Massachusetts business
trust and commenced operations on February 20, 1985. The Trust is authorized to
issue an unlimited number of shares and, since its inception to April 1, 1996,
offered only one class of shares. On that date, the Trust began offering two
additional classes of shares, Class C and Class Y shares. All shares outstanding
prior to that date were designated as Class A shares and are sold with a
front-payment sales charge and bear an annual service fee. Class C shares are
sold with a level-payment sales charge with no payment at time of purchase but
level service and distribution fees from date of purchase through a period of
six years thereafter. A contingent deferred sales charge of 1% is assessed to
any Class C shareholder who redeems shares of this Class within one year from
the date of purchase. The Class Y shares are only offered to institutions acting
for an investor in a fiduciary, advisory, agency, custodial or similar capacity
and are not offered directly to retail investors. Class Y shares are sold at net
asset value without any sales charge, redemption fees, contingent deferred sales
charge or distribution or service fees. On July 21, 1998, the Trust established
Class I shares, which are offered and sold only through financial intermediaries
and are not offered directly to retail investors. At March 31, 1999, there were
no Class I Shares outstanding. All classes of shares represent interests in the
same portfolio of investments and are identical as to rights and privileges but
differ with respect to the effect of sales charges, the distribution and/or
service fees borne by each class, expenses specific to each class, voting rights
on matters affecting a single class and the exchange privileges of each class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
a) PORTFOLIO VALUATION: Municipal securities which have remaining maturities of
more than 60 days are valued at fair value each business day based upon
information provided by a nationally prominent independent pricing service
and periodically verified through other pricing services; in the case of
securities for which market quotations are readily available, securities are
valued at the mean of bid and asked quotations and, in the case of other
securities, at fair value determined under procedures established by and
under the general supervision of the Board of Trustees. Securities which
mature in 60 days or less are valued at amortized cost if their term to
maturity at purchase was 60 days or less, or by amortizing their unrealized
appreciation or depreciation on the 61st day prior to maturity, if their term
to maturity at purchase exceeded 60 days.
b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and losses from
securities transactions are reported on the identified cost basis. Interest
income is recorded daily on the accrual basis and is adjusted for
amortization of premium and accretion of original issue discount. Market
discount is recognized upon disposition of the security.
c) FEDERAL INCOME TAXES: It is the policy of the Trust to qualify as a regulated
investment company by complying with the provisions of the Internal Revenue
Code applicable to certain investment companies. The Trust intends to make
distributions of income and securities profits sufficient to relieve it from
all, or substantially all, Federal income and excise taxes.
d) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses, are
allocated daily to each class of shares based on the relative net assets of
each class. Class-specific expenses, which include distribution and service
fees and any other items that are specifically attributed to a particular
class, are charged directly to such class.
e) USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
Management affairs of the Trust are conducted through two separate
management arrangements.
Pacific Century Trust (the "Adviser"), a division of Bank of Hawaii, serves
as Investment Adviser to the Trust. In this role, under an Investment Advisory
Agreement, the Adviser supervises the Trust's investments and provides various
services to the Trust, including maintenance of the Trust's accounting books and
records, for which it is entitled to receive a fee which is payable monthly and
computed as of the close of business each day at the annual rate of 0.14 of 1%
of the net assets of the Trust.
The Trust also has an Administration Agreement with Aquila Management
Corporation (the "Administrator"), the Trust's founder and sponsor. Under this
Agreement, the Administrator provides all administrative services, other than
those relating to the management of the Trust's investments. These include
providing the office of the Trust and all related services as well as overseeing
the activities of all the various support organizations to the Trust such as the
shareholder servicing agent, custodian, legal counsel, auditors and distributor.
For its services, the Administrator is entitled to receive a fee which is
payable monthly and computed as of the close of business each day at the annual
rate of 0.26 of 1% of the net assets of the Trust.
Specific details as to the nature and extent of the services provided by
the Adviser and the Administrator are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
The Adviser and the Administrator each agrees that the above fees shall be
reduced, but not below zero, by an amount equal to its pro-rata portion
(determined on the basis of the respective fees computed as described above) of
the amount, if any, by which the total expenses of the Trust in any fiscal year,
exclusive of taxes, interest and brokerage fees, shall exceed the lesser of (i)
2.5% of the first $30 million of average annual net assets of the Trust plus 2%
of the next $70 million of such assets and 1.5% of its average annual net assets
in excess of $100 million, or (ii) 25% of the Trust's total annual investment
income. The payment of the above fees at the end of any month will be reduced or
postponed so that at no time will there be any accrued but unpaid liability
under this expense limitation. No such reduction in fees was required during the
year ended March 31, 1999.
For the year ended March 31, 1999, the Trust incurred fees under the
Advisory Agreement and Administration Agreement of $912,501 and $1,694,655,
respectively.
b) DISTRIBUTION AND SERVICE FEES:
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part of
the Plan, with respect to Class A Shares, the Trust is authorized to make
service fee payments to broker-dealers or others ("Qualified Recipients")
selected by Aquila Distributors, Inc. (the "Distributor"), including, but not
limited to, any principal underwriter of the Trust, with which the Distributor
has entered into written agreements contemplated by Rule and which have rendered
assistance in the distribution and/or retention of the Trust's shares or
servicing of shareholder accounts. The Trust makes payment of this service fee
at the annual rate of 0.20% of the Trust's average net assets represented by
Class A Shares. For the year ended March 31, 1999, service fees on Class A
Shares amounted to $1,282,669, of which the Distributor received $70,253.
Under another part of the Plan, the Trust is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Trust's Class C shares or
servicing of shareholder accounts. These payments are made at the annual rate of
0.75% of the Trust's net assets represented by Class C Shares and for the year
ended March 31, 1999, amounted to $63,590. In addition, under a Shareholder
Services Plan, the Trust is authorized to make service fee payments with respect
to Class C Shares to Qualified Recipients for providing personal services and/or
maintenance of shareholder accounts. These payments are made at the annual rate
of 0.25% of the Trust's net assets represented by Class C Shares and for the
year ended March 31, 1999, amounted to $21,196. The total of these payments made
with respect to Class C Shares amounted to $84,786, of which the Distributor
received $45,213.
Specific details about the Plans are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the exclusive
distributor of the Trust's shares. Through agreements between the Distributor
and various broker-dealer firms ("dealers"), the Trust's shares are sold
primarily through the facilities of these dealers having offices within Hawaii,
with the bulk of sales commissions inuring to such dealers. For the year ended
March 31, 1999, the Distributor received commissions of $92,410 on sales of
Class A Shares.
4. PURCHASES AND SALES OF SECURITIES
During the year ended March 31, 1999, purchases of securities and proceeds
from the sales of securities aggregated $104,481,764 and $89,733,251,
respectively.
At March 31, 1999, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted to
$38,532,237 and gross unrealized depreciation for all securities in which there
is an excess of tax cost over market value amounted to $432,763 for a net
unrealized appreciation of $38,099,474 on sales of Class A Shares.
5. PORTFOLIO ORIENTATION
Since the Trust invests principally and may invest entirely in double
tax-free municipal obligations of issuers within Hawaii, it is subject to
possible risks associated with economic, political, or legal developments or
industrial or regional matters specifically affecting Hawaii and whatever
effects these may have upon Hawaii issuers' ability to meet their obligations.
6. DISTRIBUTIONS
The Trust declares dividends daily from net investment income and makes
payments monthly in additional shares at the net asset value per share or in
cash, at the shareholder's option. Net realized capital gains, if any, are
distributed annually.
The Trust intends to maintain, to the maximum extent possible, the
tax-exempt status of interest payments received from portfolio municipal
securities in order to allow dividends paid to shareholders from net investment
income to be exempt from regular Federal and State of Hawaii income taxes.
However, due to differences between financial statement reporting and Federal
income tax reporting requirements, distributions made by the Trust may not be
the same as the Trust's net investment income, and/or net realized securities
gains. Further, a small portion of the dividends may, under some circumstances,
be subject to taxes at ordinary income and/or capital gain rates. For certain
shareholders, some dividend income may, under some circumstances, be subject to
the alternative minimum tax. Also, annual capital gains distributions, if any,
are taxable.
7. EXPENSES
The Trust has negotiated an expense offset arrangement with its custodian
wherein it receives credit toward the reduction of custodian fees and other
Trust expenses whenever there are uninvested cash balances. The Statement of
Operations reflects the total expenses before any offset, the amount of offset
and the net expenses. It is general intention of the Trust to invest, to the
extent practicable, some or all of cash balances in income-producing assets
rather than leave cash on deposit.
8. TRUSTEES' FEES AND EXPENSES
During the fiscal year there were 11 Trustees, one of which is affiliated
with the Administrator and is not paid any trustee fees. Trustees' fees paid
during the year were at the annual rate of $12,000 for carrying out their
responsibilities and attendance at regularly scheduled quarterly Board Meetings.
A meeting of the independent trustees is often held prior to each quarterly
Board Meeting for which each attendee is paid a fee of $250. If additional or
special meetings are scheduled for the Trust, separate meeting fees are paid for
each such meeting to those Trustees in attendance. The Trust also reimburses
Trustees for expenses such as travel, accommodations, and meals incurred in
connection with attendance at regularly scheduled or special Board Meetings and
at the Annual Meeting and outreach meetings of Shareholders. For the fiscal year
ended March 31, 1999, such reimbursements averaged approximately $3,100 per
Trustee.
9. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Trust were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 31, 1999 MARCH 31, 1998
------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- ------------
</CAPTION>
CLASS A SHARES:
<S> <C> <C> <C> <C>
Proceeds from shares sold 3,332,950 $ 38,989,739 3,752,188 $ 43,271,862
Reinvested distributions 1,509,482 17,670,897 1,480,881 17,114,154
Cost of shares redeemed (5,443,402) (63,676,622) (6,777,819) (78,338,324)
------------- ------------- ------------- ------------
Net change (600,970) (7,015,986) (1,544,750) (17,952,308)
------------- ------------- ------------- ------------
CLASS C SHARES:
Proceeds from shares sold421,329 4,931,665 327,859 3,780,103
Reinvested distributions 16,958 198,529 10,794 123,070
Cost of shares redeemed (135,233) (1,580,072) (198,156) (2,241,827)
------------- ------------- ------------- ------------
Net change 303,054 3,550,122 140,497 1,661,346
------------- ------------- ------------- ------------
CLASS Y SHARES:
Proceeds from shares sold 103,622 1,213,492 107,201 1,248,262
Reinvested distributions 8,702 102,124 2,207 25,811
Cost of shares redeemed - - - -
------------- ------------- ------------- ------------
Net change 112,324 1,315,616 109,408 1,274,073
------------- ------------- ------------- ------------
Total transactions in Trust
shares (185,592) $ (2,150,248) (1,294,845) $(15,016,889)
============= ============= ============= =============
</TABLE>
</PAGE>
<PAGE>
HAWAIIAN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Class A(1)
-------------------------------------------------
Year ended March 31,
-------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $11.67 $11.23 $11.31 $11.13 $11.19
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income............................. 0.56 0.57 0.59 0.61 0.62
Net gain (loss) on securities (both
realized and unrealized)....................... 0.03 0.46 (0.08) 0.18 (0.01)
------- ------- ------- ------- -------
Total from Investment Operations.................. 0.59 1.03 0.51 0.79 0.61
------- ------- ------- ------- -------
Less Distributions (note 6):
Dividends from net investment income.............. (0.57) (0.54) (0.58) (0.61) (0.62)
Distributions from capital gains.................. (0.04) (0.05) (0.01) - (0.05)
------- ------- ------- ------- -------
Total Distributions............................... (0.61) (0.59) (0.59) (0.61) (0.67)
------- ------- ------- ------- -------
Net Asset Value, End of Period....................... $11.65 $11.67 $11.23 $11.31 $11.13
======= ======= ======= ======= =======
Total Return (not reflecting sales
charge)(%)........................................ 5.17 9.37 4.67 7.16 5.75
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands)........... 640,131 647,930 640,989 659,925 642,556
Ratio of Expenses to Average Net
Assets (%)..................................... 0.74 0.73 0.75 0.73 0.77
Ratio of Net Investment Income to
Average Net Assets (%)......................... 4.76 4.96 5.11 5.31 5.63
Portfolio Turnover Rate (%)....................... 14 9 9 28 33
The expense ratios after giving effect to the expense offset for uninvested cash
balances were:
Ratio of Expenses to Average Net
Assets (%)..................................... 0.70 0.72 0.73 0.72 0.75
</TABLE>
(1) Designated as Class A Shares on April 1, 1996.
See accompanying notes to financial statements.
</PAGE>
<PAGE>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Class C(1) Class Y(1)
-------------------------- ---------------------------
Year Ended March 31, Year Ended March 31,
-------------------------- ---------------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ------ ------
</CAPTION>
Net Asset Value, Beginning of
<S> <C> <C> <C> <C> <C> <C>
Period.................................. $11.66 $11.23 $11.31 $11.68 $11.24 $11.31
------ ------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income................... 0.46 0.48 0.46 0.59 0.67 0.74
Net gain (loss) on securities (both
realized and unrealized)............. 0.05 0.45 (0.08) 0.03 0.45 (0.07)
------ ------ ------ ------ ------ ------
Total from Investment
Operations........................... 0.51 0.93 0.38 0.62 1.12 0.67
------ ------ ------ ------ ------ ------
Less Distributions (note 6):
Dividends from net investment
income............................... (0.48) (0.45) (0.45) (0.59) (0.63) (0.73)
Distributions from capital
gains................................ (0.04) (0.05) (0.01) (0.04) (0.05) (0.01)
------ ------ ------ ------ ------ ------
Total Distributions..................... (0.52) (0.50) (0.46) (0.63) (0.68) (0.74)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period............. $11.65 $11.66 $11.23 $11.67 $11.68 $11.24
====== ====== ====== ====== ====== ======
Total Return (not reflecting sales
charge) (%)............................. 4.45 8.40 3.41 5.45 10.24 6.14
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands)........................ 10,736 7,215 5,367 2,588 1,278 0.1
Ratio of Expenses to Average Net
Assets (%)........................... 1.53 1.52 1.53 0.54 0.52 0.55
Ratio of Net Investment Income
to Average Net Assets (%)............ 3.95 4.11 4.04 4.96 5.02 4.90
Portfolio Turnover Rate (%)............. 14 9 9 14 9 9
The expense ratios after giving effect to the expense offset for uninvested cash
balances were:
Ratio of Expenses to Average Net
Assets (%)........................... 1.49 1.51 1.51 0.49 0.51 0.53
</TABLE>
(1) New Class of Shares established on April 1, 1996.
See accompanying notes to financial statements.
</PAGE>
<PAGE>
FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
This information is presented in order to comply with a requirement of the
Internal Revenue Code AND NO CURRENT ACTION ON THE PART OF SHAREHOLDERS IS
REQUIRED.
As reported in the financial statements for the fiscal year ended March 31,
1999, 92.18% of the total amount of dividends reported by the Trust should be
considered "exempt-interest dividends," 7.79% of such dividends should be
considered a capital gain dividend and the balance should be considered ordinary
dividend income. 20.80% of the Trust's dividends was derived from interest on
"private activity bonds."
The Trust hereby designates $31,013,105 as exempt-interest dividends for
the fiscal year ended March 31, 1999, where such dividends are not subject to
regular Federal income tax.
Prior to January 31, 1999, shareholders were mailed IRS Form 1099-DIV which
contained information on the status of distributions paid for the 1998 CALENDAR
YEAR.
</PAGE>
<PAGE>
PREPARING FOR YEAR 2000 (UNAUDITED)
The Trustees and officers of the Trust have been monitoring issues
involving preparedness for the turn of the century for some time in an effort to
minimize or eliminate any potential impact upon the Trust and its shareholders.
Our officers have focussed significant time and effort in order that the various
computerized functions that could affect the Trust are ready by the beginning of
the year 2000.
The Trust is highly reliant on certain mission-critical suppliers'
services. Each supplier of these services has provided the Trust's officers with
assurances that it is actively addressing potential problems relating to the
year 2000. The officers, in turn, are monitoring and will continue to monitor
the progress of its suppliers.
As you can well understand, we cannot directly control our supplier
operations. We assure you, however, that we recognize a responsibility to inform
our shareholders if in the future we become aware of any developments which
would lead us to believe that the Trust will be significantly affected by year
2000 problems.
We will continue to keep you up-to-date through future communications.
</PAGE>
